Blog posts within a page template

Ok heres the problem.

I have made a new page template like so

<?php /* Template Name: Blog */ ?>
<?php get_header(); ?>
<?php query_posts('cat=17'); ?>
	<?php if (have_posts()) : ?>

		<?php while (have_posts()) : the_post(); ?>

		<div class="post" id="post-<?php the_ID(); ?>">

			<div class="post-main">
				<h2 class="post-title">
					<a href="<?php the_permalink() ?>" rel="bookmark" title="<?php _e('Permanent link to'); ?> <?php the_title(); ?>"><?php the_title(); ?></a>
				</h2>

				<div class="post-entry">
					<?php if (is_search()) { ?>
						<?php the_content('more_link_text', strip_teaser, 'more_file'); ?>
					<?php } else { ?>
						<?php the_content(__('Read the rest of this entry &raquo;')); ?>
					<?php } ?>
				</div>

				<!--
				<?php trackback_rdf(); ?>
				-->

			</div><!-- End of .post-main -->

		</div><!-- End of .post -->

		<?php endwhile; ?>

			<!-- Page Navigation -->
			<?php if (function_exists('wp_pagenavi')) : ?>
				<div class="pagenavi">
					<?php wp_pagenavi(); ?>
				</div>
			<?php else : // Use WordPress default page navigation. ?>
			<div class="pages">
				<span class="older"><?php next_posts_link('&laquo; Older Entries'); ?></span>
				<span class="newer"><?php previous_posts_link('Newer Entries &raquo;'); ?></span>
			</div>
			<?php endif; ?>

	<?php else : ?>

		<div class="post-main">
			<h2 class="post-title"><?php _e('404 - Not Found'); ?></h2>
			<div class="post-entry">
				<p><?php _e('Sorry, no posts matched your criteria.'); ?></p>
			</div>
		</div>

	<?php endif; ?>

<?php get_sidebar(); ?>

<?php get_footer(); ?>

Assigned that page template to a new page entitled blog and created a new category called blog (which has the id of 17)

Now when i post blog entries within the blog category they show through that page and act like a normal blog.

The only problem i have is getting the <strong><!-- more --></strong> tag to excerpt the blog posts. Currently it refuses to excerpt the post where i define and shows the entire blog post one after another.

It doesn’t seem to parse whatever I do within that page although ironically if I set the posts page to blog in the wordpress options panel it does indeed then work as it should, so I know the template is right.

This would work ok but i wanted to create another page similar to this for news.

Anybody any ideas what I’m doing wrong and how i can get this template page to parse that <strong><!-- more --></strong> tag ?